Investor Lawyers Blog

Former Putnam CEO Agrees To Pay $75,000 In SEC Charges

Published on: January 19, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Lawrence Lasser, the former CEO of Putnam LLC, has agreed to pay $75,000 to settle SEC charges that he neglected to make sure the company carried out its fiduciary duties.

The Securities and Exchange Commission issued the following statement on January 9, the day that Lasser agreed to pay the settlement fee. According to the SEC, Lasser “did not ensure that Putnam fulfilled its fiduciary duty to disclose adequately to the Putnam Funds’ board of trustees the use of fund brokerage commissions to pay for ‘shelf space’ arrangements or potential conflicts of interest created by this use.”

By agreeing to pay the settlement fine, however, Lasser is not admitting or denying the SEC’s charges against him.

JP Morgan Chase Reports Strong Profits For 4th Quarter From Investment Banking Growth And The Sale Of Their Trust Unit

Published on: January 18, 2007 | by Shepherd Smith Edwards & Kantas, LLP

JP Morgan Chase & Co. is reporting a 68% increase from the sale of their corporate trust unit, as well as strong investment growth. Credit quality became weaker, however. This suggests that the investment bank’s individual and commercial clients, like with many major banks, had a more difficult time paying their bills.

JP Morgan Chase is the third largest bank in the U.S. For its 4th quarter, the bank reported a net income of $4.53 billion, up $2.7 billion from the previous year. Revenue was $16.05 billion. According to analysts, 2007 is looking “modestly better than expected” for JP Morgan Chase.

Meanwhile, Wells Fargo & Co, the fifth largest bank in the country, reported a 13% rise in fourth quarter earnings. Credit losses for Wells Fargo also grew.

In Alleged $194 Million Scam, Florida Hedge Fund Operators Of KL Financial Group Face Fraud And Other Criminal Charges

Published on: January 17, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In Florida, three people were charged with fraud and other criminal offenses in connection with a scam that allegedly lost almost $195 million of investors’ money.

Jung (John) Bae Kim, his brother Yung Kim, and brother Won Sok Lee were named as the defendants in a 35-count indictment that was unsealed in the U.S. District Court for the Southern District of Florida. While John Kim has been arrested, the other two men are still fugitives.

Charges in the indictment include money laundering, multiple counts of mail and wire fraud, conspiracy to commit mail and wire fraud, and conspiracy to commit money laundering. KL Group LLC, KL Triangulum Management LLC, and KL Florida LLC, the three hedge fund-adviser companies owned and operated by the three defendants, were also named in the indictment. The charges against the three companies were related to the alleged investment fraud conspiracy only.

In $1 Billion Viatical Scheme Connected To Mutual Benefits Corp., A Doctor From South Florida Pleads Guilty

Published on: January 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Clark Mitchell, a South Florida physician, has pleaded guilty to two criminal counts related to a $1 billion viatical sales scheme connected to death benefits company Mutual Benefits Corp. The company has been shut down by state and federal authorities.

In a plea agreement announced at the U.S. District Court for the Southern District of Florida, Mitchell pleaded guilty to one count of conspiracy to commit health care fraud and one count of securities fraud.

The South Florida physician faces a 10-year prison sentence-to be determined in March. He is being ordered to pay a fine of more than $5 million. Also as part of the plea agreement, Mitchell will be responsible for some $367 million in restitution to Mutual Benefits Corp. investors, as well as over $500,000 in health care fraud restitution.

NASD Accuses Morgan Stanley Of Failing To Hand Over Emails And Blaming 9/11

Published on: January 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The NASD says that securities giant Morgan Stanley lied when it said that millions of key email messages requested by plaintiffs and investigators in numerous proceedings against the company had been destroyed during the September 11 terrorist attack in 2001.

According to NASD head of enforcement and executive vice president James Shorris, thousands of cases were affected by this deliberate lie. “The firm made the claim they didn’t know the e-mail was restored, but everyone who came back to work on Sept. 17 turned on their computer, and the e-mail was there.”

The allegations were brought forth by the NASD late December in a disciplinary complaint. Pending an NASD hearing, remedies could include censure, a fine, disgorgement of gains associated with violations, a suspension or bar from securities industries, and payment of restitution.

Hampton Porter Investment Bankers’s Stockbrokers, Convicted For Securities Fraud In Pump-And-Dump Scheme, To Be Sentenced This Year

Published on: January 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In California, four stockbrokers who were convicted for securities fraud and conspiracy because of their roles in a “pump-and-dump” scheme that cost investors over $5 million will be sentenced this year.

According to the U.S. Attorney’s Office, the four men worked for Hampton Porter Investment Bankers LLC, a San Diego-based company that failed to disclose the company’s financial interests in certain stocks when it sold these particular stocks to clients.

Hampton Porter allegedly held sales meetings where co-owner John Laurienti and former Hampton Porter retail manager James Green pressured brokers to sell “house stocks.” Brokers who sold these stocks were paid “special incentive” compensation that customers didn’t know about. Hampton Porter also had a “no net-sales” policy that prevented customers from selling their house stocks’ shares because brokers delayed or failed to make sell orders. Brokers from Hampton Porter also engaged in cross-trading, which consists of selling one client’s shares to another client.

N.Y. Attorney General’s Office Sues UBS Financial Services, Inc.

Published on: January 4, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The New York Attorney General’s Office is suing UBS Financial Services, Inc. for defrauding thousands of its customers. The lawsuit provides detailed information about a scheme where UBS moved clients from regular brokerage accounts to UBS’s “InsightOne” brokerage program, even though these investors were actually not well-suited for the program. UBS is a leading brokerage firm in the United States.

With InsightOne, brokerage customers had to pay an asset-based fee instead of a per-transaction commission. Asset-based fees, however, are not appropriate for investors who hardly ever trade securities or hold no-load mutual funds, a large amount of cash, or similar assets. UBS is being accused of falsely promoting InsightOne as being a brokerage program that offers personalized advice and other types of financial planning services.

Instead of discouraging investors who were inappropriate for InsightOne from joining the program, the N.Y. Attorney General’s Office says that UBS:

NASD Arbitration Panel Says Ameriprise’s Securities America Must Pay Retired American Airline Pilots Up To $9.3 Million

Published on: January 3, 2007 | by Shepherd Smith Edwards & Kantas, LLP

An arbitration panel for the NASD says that Ameriprise’s Securities America must pay up to $9.3 million to three retired American Airlines pilots who are accusing a broker of spending their retirement savings on mutual funds that had high fees and trading costs. A spin off from American Express Co., Amerprise Financial offers clients financial planning and advice. Securities America is an Ameriprise Financial Inc. subsidiary.

In an NASD ruling, broker Robert P. Gormly, Jr. and Securities America are both being held liable for $2.4 million in lawyer’s fees and $3.9 million in damages. In addition, Securities America must also pay $3 million in punitive damages.

According to the American Airlines pilots, Gormly (who had been affiliated with Securities America in Texas) had initially purchased products from the American mutual funds group, liquidated the funds between 1998 and 2003, and then directed the pilots’ money into more aggressive Rydex funds that he traded on a nearly daily basis.

SEC Files Lawsuit Against Hedge Fund Manager Over Pipe Trading Scheme

Published on: December 28, 2006 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission recently filed a lawsuit against Edwin Buchanan Lyon, a hedge fund manager, and seven funds known as the “Gryphon Partners” regarding their alleged role involving 35 PIPE (Private Investments in Public Equities) offerings and Canadian short sales. Lyon is the managing partner and chief investment officer of Gryphon.

A PIPE is the purchase of stock in a company by a mutual fund, investment firm, or other qualified investor at a reduced rate per share for the purpose of raising capital. There are two major kinds of PIPE: traditional and structured. A traditional PIPE is where stock, either common or preferred, is issued at a set price. A structured PIPE issues convertible debt. PIPEs are a popular financing technique because of their relative efficiency in terms of time and cost. A PIPE can offer liquidity to a company in need of funds.

According to the SEC, the defendants allegedly attempted to “improperly realize more than $6.5 million in ill-gotten gains… without incurring market risk.” Three of the ways the defendants allegedly did this was to 1) evade registration requirements related to at least 35 PIPE offerings, 2) make material misrepresentations to PIPE issuers, and 3) engage in insider trading.

Morgan Stanley Awards CEO John Mack $40 Million Bonus

Published on: December 27, 2006 | by Shepherd Smith Edwards & Kantas, LLP

This year, Morgan Stanley Chief Executive Officer John Mack was given the largest bonus ever for a Wall Street firm head. His company gave him $40 million after garnering its best profits yet in their 71-year history. As of December 12, the bonus was presented to Mack in options worth $4 million and $36.2 million in shares. His 2006 bonus was 44% larger than his bonus last year and nearly $2 million more than the total compensation received by Goldman Sachs Group Inc. CEO Henry Paulson in 2005.

Mack’s bonus comes 18 months after he rejoined the firm following the firing of former Morgan Stanley CEO Philip Purcell because of the company’s unimpressive performance. Upon being appointed CEO, Mack promised investors that he would improve the Morgan Stanley’s lowered stock price and increase the company’s profits. Morgan Stanley also gave over $57 million in company bonuses to several other Morgan Stanley executives.

This year, shares of Morgan Stanley have gained 43%, outpacing the 24% advantage of the Amex Securities Broker/Dealer Index. It is the second-biggest securities firm in the United States by market value. Morgan Stanley is also one of 12 financial firms that has been accused of allowing its interests to affect its stock reports. In one case, the investment banking firm agreed to pay a $125 million fine to the SEC-although the firm did not admit any wrongdoing-following accusations by luxury firm LVMH that Morgan Stanley treated Gucci-a Morgan Stanley client-preferentially by giving them favorable coverage.